Market Round-Up: 22 October – 26 October 2018

With a week to go before Halloween, global stock markets put on a horror show of their own, suffering the stuff of nightmares as a brutal and broad-based sell off ensued.

Tuesday and Wednesday saw the most damage, as investors digested a lethal cocktail of mixed earnings and geopolitical uncertainties which weighed on investor sentiment.

Wall Street stocks endured the bulk of the panic, with the S&P500 erasing gains and heading into negative territory for the year. The tech-heavy NASDAQ fared no better, suffering its worst one-day fall in seven years. The pain was felt this side of the Atlantic too, with the FTSE 100 on track for its worst month in almost a decade, falling through the technical support level of 7,000. UK midcaps were also hurt, falling to a level not seen since February 2017.

It was a mixed week for Europe, as PMI data showed that business growth decelerated faster than expected due to a sharp fall in orders. The US dollar enjoyed mild gains on the common currency from the news and strengthened further after an address by Mario Draghi, President of the European Central Bank, on Thursday. Although Mr Draghi acknowledged “gradually rising inflation” was consistent with an ongoing broad-based expansion in the Eurozone, he failed to tackle the question over Italy’s expansionary budget.

On the economic data front, there was more disappointment as US New Home Sales fell to two-year lows. The data acts as a leading indicator, with many economists interpreting such weakness as the first sign that rising rates and higher prices were beginning to slow the US economy. Although the housing industry in the US is relatively small in the grand scheme of things, its footprint is significant, having a far-reaching effect for retailers, law firms, estate agents and property companies. If home sales continue to be subdued then economic growth is usually stymied. The data itself showed that new home sales dropped 5.5% to a seasonally adjusted rate of 553,000 last month, the lowest level since December 2016.

Given the volatility in October, investors have looked to the US earnings season to help support markets. During the midway point in the week around half of the S&P 500 had reported earnings, with only 59 companies missing revenue estimates compared to 101 beating estimates. Notable positive results came from Tesla, which reported only its third quarterly profit in its 15-year history and Microsoft delivering very strong results, easily beating both sales and earnings estimates.

The week ended with some timely good news from the US; Quarter on Quarter GDP rose 3.5% versus estimates of 3.3%, highlighting the strength of the US economy.